01 October 2015

Decision Sheet Seneca Paper Company

Nripesh Pokhrel 15233

Section E

Q1. Analyze and understand the kind of pricing moves different companies have made so far over a period of
time in the market. You might like to predict the future moves by competitors.
As the gummed sealing tape market is in its mature stage, there is hardly any differentiation between the products of
the various companies in the gummed sealing tape market. The branded products tend to be costlier than the
unbranded ones due to the involvement of higher advertising costs. Smaller non-integrated players sold their
unbranded products directly to relatively larger players at lower prices than those of the branded products.
The different pricing moves by the different companies can be put as:
1. Price cut by Phoenix Paper company: Even though the jobbers preferred branded products and were
influenced by the advertisements, the market was also highly sensitive to price. A price cut by Phoenix who is
the market leader, forced all the branded and the unbranded manufacturers to cut prices to be at parity with
Phoenix.
2. Seneca introduced third grade tapes: The company created a different segment altogether to compete with the
smaller producers, but still the third grade market did not grow beyond 20%. This implies that a major chunk
of consumers still values quality over price. Almost all the players in the market followed Seneca in
introducing a third grade gummed sealing tape.
3. Seneca increased its prices: Following Seneca, a few competitors also increased their prices. But Compton
introduced Atlas, which was earlier competing in standard segment, into the third grade segment by keeping
the price at $6.10 and introduced a new product Guardian in the standard segment at $6.40 and positioned it as
a better product. Three Midwest firms also left the prices of their standard and super standard products at
$6.10 and $6.55 respectively.
As the market is price sensitive and brand sensitive too, in a phase of maturity, there seems to be a tight competition
between the unbranded cheaper tapes and the branded ones. The branded companies have additional expenses of
advertising, but cannot afford to lose out on the market. Hence, as a future course, once the unbranded and the
medium sized firms start selling their standard tapes at $6.10 and super standard at $6.55, the branded and the
integrated companies will be forced to lower their prices, but only after taking a hit in the market share. This means
that the companies might as well not follow their decision to increase and might roll back the price increase.

Q2. What action should be taken regarding the price increase already announced which would come into effect
on February 8, 1958? What is your recommendation for future strategy of Seneca? Please justify.
Seneca should roll back its price increase to the previous level.
Phoenix and Fletcher have moved to the same pricing as that of Seneca, but Senecas primary competitor in Midwest,
Compton, as well three small firms in Midwest have dropped their third-grade products and are selling their earlier
standard products at $6.1 per bundle which is equal to the increased third grade price of Seneca.
If the customers and the jobbers begin buying gummed tape from these competitors, Seneca will lose its market share.
The other Seneca products in Standard and Super Standard grade will face lesser competition as the big players have
increased the prices for these products, but can still see market share falling due to the standard and super standard
tapes being priced at substantially lower rate by the other competitors.
The loss of market in third grade gummed tape will be much more because two primary competitors in the primary
region, Compton and three medium sized producers had dropped their third grade product and will now be selling
their standard product at the new price of Senecas third grade tape.
It is but imperative that in such a fragmented and competitive market, Seneca roll back its price increase. If at all
anything can be done to increase the profits will be through operational efficiencies, which should have been done a
few years back to avoid the current situation.